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Ross Transport Corp. v. Crothers

Maryland Court of Appeals
185 Md. 573, 45 A.2d 267 (1946)

Written by Daniel Clark, JD

Facts

Several individuals founded the Ross Transport Corporation (Ross). The founders originally authorized an issuance of 5,000 shares. The corporation sold 1,035 of those shares to a small group of shareholders at $20 per share to provide the company’s initial capital. Ross was very successful, and its shares became worth considerably more than $20 each. The directors then voted to sell an additional 365 shares to a director and to several family members of corporate insiders (defendants). Ross did not offer the existing shareholders a prior opportunity to purchase a proportional share of those 365 shares that would allow the shareholders to maintain their proportionate ownership of the corporation. As a result, the existing shareholders’ ownership in the company was diluted. Two of these diluted shareholders, Charles Crothers and Edmund Crothers (plaintiffs), sued to have the sale of the 365 shares voided and for return of any distributions made on account of the shares. The trial court found for the Crothers, and the corporation and the recipients of the 365 shares appealed.

Rule of Law

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Holding and Reasoning (Marbury, C.J.)

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